BALTIMORE (Stockpickr) -- The market is pointed higher this morning. It doesn't hurt that the biggest company on the planet added $40 billion to its market cap over night, but Apple (AAPL) isn't alone in looking spectacular this morning. In fact, as I'm about to show you, the money hasn't even been made in AAPL yet.
Mega-cap stocks -- the top tier of publicly traded companies by market capitalization -- have been enjoying a strong run in the last couple of months. That relative outperformance isn't likely to wear out anytime soon either; investor anxiety is still high, and Wall Street's biggest names still offer a perceived safety net right now.
More important, they offer a flight to yield at a time when rates aren't behaving the way certain central bankers said they would.
So, to take full advantage of the blue-chip buying, we're taking a technical look at five of Wall Street's biggest stocks.
If you're new to technical analysis, here's the executive summary.
Technicals are a study of the market itself. Since the market is ultimately the only mechanism that determines a stock's price, technical analysis is a valuable tool even in the roughest of trading conditions. Technical charts are used every day by proprietary trading floors, Wall Street's biggest financial firms, and individual investors to get an edge on the market. And research shows that skilled technical traders can bank gains as much as 90% of the time.
Every week, I take an in-depth look at big names that are telling important technical stories. Here's this week's look at five high-volume stocks to trade this week.
First up is Apple (AAPL), the $500 billion tech giant that's up big this morning on the heels of a very positive second quarter earnings call. There are a lot of fundamental reasons to like Apple in 2014. In fact, I've laid them out more than once. But the story that investors are missing this morning is the technical picture that's been setting up in shares since December.
Apple has been forming an inverse head and shoulders pattern for the last few months, a setup that indicates exhaustion among sellers. The pattern is formed by two swing lows that bottom out around the same level (the shoulders), separated by a deeper low (the head). A breakout above the neckline is the buy signal. AAPL's neckline is right at $540, so Apple is screaming "buy" thanks to its big gap up today.
More important, the breakout puts AAPL's share price within reach of 52-week highs. In short, that means that anyone who's bought this stock in the last year is sitting on gains. That has a big psychological impact on reducing selling pressure. Apple's planned 7-for-1 stock split should provide another big psychological buying boost in 2014.
Apple may be up big this morning, but it has a lot of open runway ahead of it.
Oil and gas supermajor Chevron (CVX) hasn't done much in 2014; shares of the $237 billion energy company have dipped 0.18% since the calendar flipped to January. But that doesn't tell the whole story of what's been happening in this stock: CVX dipped more than 12% in February, and then made it all back in the months since.
That's setting Chevron up for a test of a resistance level that's acted like a ceiling for shares for more than a year now. If CVX can catch a bid above $124.50, we've got a major buy signal. That's happening today.
Why does $124.50 carry so much significance for Chevron? Whenever you're looking at any technical price pattern, it's critical to think in terms of buyers and sellers. Price pattern names are a good quick way to explain what's going on in this stock, but they're not the reason it's tradable. Instead, it all comes down to supply and demand for shares.
That resistance line at $124.50, for example, is a price where there's an excess of supply of shares; in other words, it's a place where sellers have been more eager to take recent gains and sell their shares than buyers have been to buy. That's what makes the move above it so significant -- a breakout indicates that buyers are finally strong enough to absorb all of the excess supply above that price level.
At the same time, relative strength just turned bullish for CVX for the first time over the course of this trading setup. That means that this name continues to outperform the broad market through every price swing. Buy the breakout in CVX.
You don't have to be an expert technical trader to figure out what's going on in shares of $265 billion conglomerate General Electric (GE) -- a quick glance at the chart should be enough. That's because, since the start of February, GE has been pushing higher in a very well defined uptrending channel.
Now it makes sense to buy the bounce.
GE has been bouncing in between a pair of parallel trend lines for three months now. It may be a short-term trend, but those lines are the high-probability range for shares of GE to keep bouncing in between. So as shares slide off of trend line resistance, patient investors are coming up on a fourth buying opportunity in this channel when GE comes down to test support.
Momentum, measured by 14-day RSI, adds some extra confidence to the GE trade. Our momentum gauge has been making higher lows alongside General Electric's price action. Since momentum is a leading indicator of price, that's a bullish signal as we head into May.
Procter & Gamble
Procter & Gamble (PG) is showing traders the exact same setup right now. Like GE, this name has been bouncing higher in an uptrending channel since the start of February. So while the trend is short and the channel is narrow, PG is a "buy the dips stock".
More specifically, it's a stock where you should buy the bounce. Waiting to buy off a support bounce makes sense for two big reasons: It's the spot where shares have the furthest to move up before they hit resistance, and it's the spot where the risk is the least (because shares have the least room to move lower before you know you're wrong). Remember, all trend lines do eventually break, but by actually waiting for the bounce to happen first, you're ensuring PG can actually still catch a bid along that line.
The 50-day moving average has started acting like a solid proxy for trend line support in the last month. If you decide to jump in today, following yesterday's touch of support, it makes sense to keep a protective stop at that line.
Not all of the names we're looking at today are buys sometimes, the best trade is the one you don't take. That's certainly been the case in Toyota Motor (TM) in the last few months. Since October, Toyota has lost more than 16% of its share price. Now, it's bouncing lower in the exact opposite price setup from the ones in GE and Procter & Gamble.
Toyota is moving lower in a downtrending channel, swatted down on each of the last five attempts at trend line resistance. TM is a "sell the rips" stock right now -- particularly because it doesn't have a floor in sight. While that may look tempting to value investors as Toyota's earning multiple compresses into the single digits, buyers should be thinking about how much lower that P/E could go before it bottoms out. The answer is "a lot."
Like with Procter & Gamble's uptrend, Toyota's 50-day moving average is a great proxy for the end of this trend. I wouldn't think about going long TM until shares can push through the 50-day.
To see this week's trades in action, check out the Must-See Charts portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.